Intrinsic value of Telefonica ADR - TEF

Previous Close

$9.78

  Intrinsic Value

$7.79

stock screener

  Rating & Target

sell

-20%

Previous close

$9.78

 
Intrinsic value

$7.79

 
Up/down potential

-20%

 
Rating

sell

*Intrinsic value change (in %) minus stock price change (in %) in the past 12 months.

We calculate the intrinsic value of TEF stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 2016), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 51.4

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2016(a)
   2017
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  -5.24
  2.00
  2.30
  2.57
  2.81
  3.03
  3.23
  3.41
  3.57
  3.71
  3.84
  3.95
  4.06
  4.15
  4.24
  4.31
  4.38
  4.44
  4.50
  4.55
  4.59
  4.64
  4.67
  4.70
  4.73
  4.76
  4.78
  4.81
  4.83
  4.84
  4.86
Revenue, $m
  54,920
  56,018
  57,307
  58,780
  60,433
  62,265
  64,275
  66,464
  68,834
  71,387
  74,126
  77,057
  80,185
  83,515
  87,054
  90,809
  94,788
  99,001
  103,455
  108,162
  113,132
  118,376
  123,906
  129,736
  135,878
  142,346
  149,157
  156,326
  163,869
  171,805
  180,153
Variable operating expenses, $m
 
  52,373
  53,508
  54,805
  56,261
  57,875
  59,646
  61,574
  63,662
  65,910
  68,324
  67,878
  70,633
  73,566
  76,683
  79,991
  83,496
  87,207
  91,131
  95,277
  99,655
  104,274
  109,146
  114,281
  119,691
  125,389
  131,388
  137,703
  144,348
  151,339
  158,692
Fixed operating expenses, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total operating expenses, $m
  49,148
  52,373
  53,508
  54,805
  56,261
  57,875
  59,646
  61,574
  63,662
  65,910
  68,324
  67,878
  70,633
  73,566
  76,683
  79,991
  83,496
  87,207
  91,131
  95,277
  99,655
  104,274
  109,146
  114,281
  119,691
  125,389
  131,388
  137,703
  144,348
  151,339
  158,692
Operating income, $m
  5,772
  3,646
  3,799
  3,975
  4,172
  4,390
  4,629
  4,890
  5,172
  5,477
  5,803
  9,180
  9,552
  9,949
  10,370
  10,818
  11,292
  11,794
  12,324
  12,885
  13,477
  14,102
  14,761
  15,455
  16,187
  16,957
  17,769
  18,623
  19,521
  20,467
  21,461
EBITDA, $m
  5,772
  12,701
  12,993
  13,327
  13,702
  14,117
  14,573
  15,069
  15,607
  16,185
  16,807
  17,471
  18,180
  18,935
  19,737
  20,589
  21,491
  22,446
  23,456
  24,523
  25,650
  26,839
  28,093
  29,415
  30,807
  32,274
  33,818
  35,443
  37,154
  38,953
  40,846
Interest expense (income), $m
  -2,262
  1,871
  1,945
  2,030
  2,128
  2,238
  2,360
  2,494
  2,639
  2,797
  2,966
  3,148
  3,343
  3,551
  3,772
  4,007
  4,257
  4,521
  4,801
  5,098
  5,410
  5,741
  6,089
  6,457
  6,844
  7,252
  7,682
  8,135
  8,611
  9,113
  9,640
Earnings before tax, $m
  3,425
  1,775
  1,854
  1,944
  2,043
  2,152
  2,269
  2,397
  2,533
  2,680
  2,837
  6,031
  6,209
  6,398
  6,598
  6,810
  7,035
  7,272
  7,523
  7,788
  8,067
  8,361
  8,672
  8,998
  9,343
  9,705
  10,086
  10,488
  10,910
  11,354
  11,821
Tax expense, $m
  893
  479
  501
  525
  552
  581
  613
  647
  684
  724
  766
  1,628
  1,676
  1,727
  1,782
  1,839
  1,899
  1,964
  2,031
  2,103
  2,178
  2,258
  2,341
  2,430
  2,523
  2,620
  2,723
  2,832
  2,946
  3,066
  3,192
Net income, $m
  2,500
  1,295
  1,354
  1,419
  1,492
  1,571
  1,657
  1,749
  1,849
  1,956
  2,071
  4,403
  4,533
  4,671
  4,817
  4,972
  5,135
  5,309
  5,492
  5,685
  5,889
  6,104
  6,330
  6,569
  6,820
  7,085
  7,363
  7,656
  7,964
  8,288
  8,629

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  7,061
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  130,493
  125,884
  128,779
  132,089
  135,805
  139,922
  144,439
  149,358
  154,683
  160,420
  166,576
  173,163
  180,191
  187,673
  195,626
  204,065
  213,007
  222,474
  232,484
  243,062
  254,230
  266,014
  278,441
  291,541
  305,343
  319,879
  335,184
  351,294
  368,246
  386,080
  404,838
Adjusted assets (=assets-cash), $m
  123,432
  125,884
  128,779
  132,089
  135,805
  139,922
  144,439
  149,358
  154,683
  160,420
  166,576
  173,163
  180,191
  187,673
  195,626
  204,065
  213,007
  222,474
  232,484
  243,062
  254,230
  266,014
  278,441
  291,541
  305,343
  319,879
  335,184
  351,294
  368,246
  386,080
  404,838
Revenue / Adjusted assets
  0.445
  0.445
  0.445
  0.445
  0.445
  0.445
  0.445
  0.445
  0.445
  0.445
  0.445
  0.445
  0.445
  0.445
  0.445
  0.445
  0.445
  0.445
  0.445
  0.445
  0.445
  0.445
  0.445
  0.445
  0.445
  0.445
  0.445
  0.445
  0.445
  0.445
  0.445
Average production assets, $m
  59,088
  60,276
  61,662
  63,247
  65,026
  66,997
  69,160
  71,516
  74,065
  76,812
  79,760
  82,914
  86,279
  89,862
  93,670
  97,710
  101,992
  106,525
  111,318
  116,383
  121,730
  127,373
  133,323
  139,596
  146,204
  153,165
  160,493
  168,206
  176,323
  184,863
  193,845
Working capital, $m
  -16,335
  -8,291
  -8,481
  -8,699
  -8,944
  -9,215
  -9,513
  -9,837
  -10,187
  -10,565
  -10,971
  -11,404
  -11,867
  -12,360
  -12,884
  -13,440
  -14,029
  -14,652
  -15,311
  -16,008
  -16,744
  -17,520
  -18,338
  -19,201
  -20,110
  -21,067
  -22,075
  -23,136
  -24,253
  -25,427
  -26,663
Total debt, $m
  60,524
  55,566
  58,013
  60,809
  63,949
  67,428
  71,245
  75,402
  79,901
  84,749
  89,951
  95,516
  101,455
  107,778
  114,498
  121,629
  129,185
  137,184
  145,643
  154,581
  164,018
  173,976
  184,477
  195,546
  207,209
  219,492
  232,425
  246,037
  260,362
  275,431
  291,282
Total liabilities, $m
  111,330
  106,372
  108,819
  111,615
  114,755
  118,234
  122,051
  126,208
  130,707
  135,555
  140,757
  146,322
  152,261
  158,584
  165,304
  172,435
  179,991
  187,990
  196,449
  205,387
  214,824
  224,782
  235,283
  246,352
  258,015
  270,298
  283,231
  296,843
  311,168
  326,237
  342,088
Total equity, $m
  19,163
  19,512
  19,961
  20,474
  21,050
  21,688
  22,388
  23,151
  23,976
  24,865
  25,819
  26,840
  27,930
  29,089
  30,322
  31,630
  33,016
  34,483
  36,035
  37,675
  39,406
  41,232
  43,158
  45,189
  47,328
  49,581
  51,954
  54,451
  57,078
  59,842
  62,750
Total liabilities and equity, $m
  130,493
  125,884
  128,780
  132,089
  135,805
  139,922
  144,439
  149,359
  154,683
  160,420
  166,576
  173,162
  180,191
  187,673
  195,626
  204,065
  213,007
  222,473
  232,484
  243,062
  254,230
  266,014
  278,441
  291,541
  305,343
  319,879
  335,185
  351,294
  368,246
  386,079
  404,838
Debt-to-equity ratio
  3.158
  2.850
  2.910
  2.970
  3.040
  3.110
  3.180
  3.260
  3.330
  3.410
  3.480
  3.560
  3.630
  3.710
  3.780
  3.850
  3.910
  3.980
  4.040
  4.100
  4.160
  4.220
  4.270
  4.330
  4.380
  4.430
  4.470
  4.520
  4.560
  4.600
  4.640
Adjusted equity ratio
  0.131
  0.155
  0.155
  0.155
  0.155
  0.155
  0.155
  0.155
  0.155
  0.155
  0.155
  0.155
  0.155
  0.155
  0.155
  0.155
  0.155
  0.155
  0.155
  0.155
  0.155
  0.155
  0.155
  0.155
  0.155
  0.155
  0.155
  0.155
  0.155
  0.155
  0.155

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  2,500
  1,295
  1,354
  1,419
  1,492
  1,571
  1,657
  1,749
  1,849
  1,956
  2,071
  4,403
  4,533
  4,671
  4,817
  4,972
  5,135
  5,309
  5,492
  5,685
  5,889
  6,104
  6,330
  6,569
  6,820
  7,085
  7,363
  7,656
  7,964
  8,288
  8,629
Depreciation, amort., depletion, $m
  0
  9,055
  9,194
  9,352
  9,530
  9,727
  9,944
  10,179
  10,434
  10,709
  11,004
  8,291
  8,628
  8,986
  9,367
  9,771
  10,199
  10,652
  11,132
  11,638
  12,173
  12,737
  13,332
  13,960
  14,620
  15,316
  16,049
  16,821
  17,632
  18,486
  19,384
Funds from operations, $m
  14,132
  10,351
  10,548
  10,772
  11,022
  11,298
  11,600
  11,929
  12,283
  12,665
  13,074
  12,694
  13,161
  13,657
  14,184
  14,743
  15,335
  15,961
  16,624
  17,323
  18,062
  18,841
  19,663
  20,528
  21,441
  22,401
  23,412
  24,477
  25,597
  26,775
  28,014
Change in working capital, $m
  27
  -163
  -191
  -218
  -245
  -271
  -298
  -324
  -351
  -378
  -405
  -434
  -463
  -493
  -524
  -556
  -589
  -623
  -659
  -697
  -736
  -776
  -818
  -863
  -909
  -957
  -1,008
  -1,061
  -1,116
  -1,175
  -1,235
Cash from operations, $m
  14,105
  10,513
  10,738
  10,990
  11,267
  11,569
  11,898
  12,253
  12,634
  13,043
  13,480
  13,128
  13,623
  14,150
  14,707
  15,298
  15,924
  16,585
  17,283
  18,020
  18,797
  19,617
  20,481
  21,391
  22,350
  23,359
  24,420
  25,538
  26,713
  27,949
  29,249
Maintenance CAPEX, $m
  0
  -5,909
  -6,028
  -6,166
  -6,325
  -6,503
  -6,700
  -6,916
  -7,152
  -7,407
  -7,681
  -7,976
  -8,291
  -8,628
  -8,986
  -9,367
  -9,771
  -10,199
  -10,652
  -11,132
  -11,638
  -12,173
  -12,737
  -13,332
  -13,960
  -14,620
  -15,316
  -16,049
  -16,821
  -17,632
  -18,486
New CAPEX, $m
  -9,696
  -1,188
  -1,386
  -1,585
  -1,779
  -1,971
  -2,163
  -2,355
  -2,550
  -2,747
  -2,948
  -3,154
  -3,365
  -3,583
  -3,808
  -4,041
  -4,282
  -4,533
  -4,793
  -5,065
  -5,347
  -5,643
  -5,951
  -6,272
  -6,609
  -6,960
  -7,328
  -7,714
  -8,117
  -8,539
  -8,982
Cash from investing activities, $m
  -8,663
  -7,097
  -7,414
  -7,751
  -8,104
  -8,474
  -8,863
  -9,271
  -9,702
  -10,154
  -10,629
  -11,130
  -11,656
  -12,211
  -12,794
  -13,408
  -14,053
  -14,732
  -15,445
  -16,197
  -16,985
  -17,816
  -18,688
  -19,604
  -20,569
  -21,580
  -22,644
  -23,763
  -24,938
  -26,171
  -27,468
Free cash flow, $m
  5,442
  3,416
  3,324
  3,239
  3,163
  3,095
  3,035
  2,981
  2,933
  2,890
  2,851
  1,998
  1,967
  1,939
  1,913
  1,891
  1,871
  1,853
  1,837
  1,823
  1,812
  1,802
  1,793
  1,786
  1,781
  1,778
  1,776
  1,775
  1,776
  1,778
  1,781
Issuance/(repayment) of debt, $m
  682
  2,103
  2,447
  2,797
  3,140
  3,479
  3,817
  4,157
  4,499
  4,847
  5,202
  5,565
  5,939
  6,323
  6,720
  7,131
  7,557
  7,999
  8,459
  8,938
  9,437
  9,958
  10,501
  11,069
  11,663
  12,283
  12,933
  13,613
  14,324
  15,070
  15,851
Issuance/(repurchase) of shares, $m
  -4
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  -1,387
  2,103
  2,447
  2,797
  3,140
  3,479
  3,817
  4,157
  4,499
  4,847
  5,202
  5,565
  5,939
  6,323
  6,720
  7,131
  7,557
  7,999
  8,459
  8,938
  9,437
  9,958
  10,501
  11,069
  11,663
  12,283
  12,933
  13,613
  14,324
  15,070
  15,851
Total cash flow (excl. dividends), $m
  4,250
  5,519
  5,771
  6,035
  6,302
  6,574
  6,852
  7,138
  7,432
  7,737
  8,053
  7,564
  7,906
  8,262
  8,633
  9,022
  9,427
  9,852
  10,296
  10,761
  11,249
  11,759
  12,294
  12,856
  13,444
  14,061
  14,708
  15,387
  16,100
  16,847
  17,632
Retained Cash Flow (-), $m
  -2,518
  -349
  -449
  -513
  -576
  -638
  -700
  -762
  -825
  -889
  -954
  -1,021
  -1,089
  -1,160
  -1,233
  -1,308
  -1,386
  -1,467
  -1,552
  -1,639
  -1,731
  -1,827
  -1,926
  -2,030
  -2,139
  -2,253
  -2,372
  -2,497
  -2,628
  -2,764
  -2,908
Prev. year cash balance distribution, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
 
  5,170
  5,322
  5,522
  5,727
  5,936
  6,152
  6,375
  6,607
  6,848
  7,099
  6,543
  6,816
  7,102
  7,401
  7,714
  8,041
  8,385
  8,744
  9,122
  9,518
  9,933
  10,368
  10,825
  11,305
  11,808
  12,336
  12,890
  13,472
  14,083
  14,724
Discount rate, %
 
  8.90
  9.35
  9.81
  10.30
  10.82
  11.36
  11.93
  12.52
  13.15
  13.81
  14.50
  15.22
  15.98
  16.78
  17.62
  18.50
  19.43
  20.40
  21.42
  22.49
  23.61
  24.80
  26.03
  27.34
  28.70
  30.14
  31.65
  33.23
  34.89
  36.63
PV of cash for distribution, $m
 
  4,748
  4,451
  4,170
  3,869
  3,552
  3,226
  2,897
  2,571
  2,253
  1,948
  1,476
  1,245
  1,033
  843
  676
  532
  410
  309
  228
  165
  116
  79
  53
  34
  21
  13
  8
  4
  2
  1
Current shareholders' claim on cash, %
  100
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0

Telefonica, S.A. is an integrated and diversified telecommunications group operating in Europe and Latin America. The Company's services and products include Mobile business, Fixed-line telephony business and Digital services. Its segments include Telefonica Spain, Telefonica Brazil, Telefonica Germany, Telefonica United Kingdom and Telefonica Hispanoamerica (formed by the Company's operators in Argentina, Chile, Peru, Colombia, Mexico, Venezuela and Central America, Ecuador and Uruguay). These segments are engaged in activities relating to wireline, wireless, cable, data, Internet and television (TV) businesses and other digital services in accordance with each location. It offers a range of mobile and related services and products to personal and business customers. It offers traditional fixed telecommunication services, Internet and broadband multimedia services and data and business-solutions services. It offers a range of digital services, such as Internet of Things (IoT).

FINANCIAL RATIOS  of  Telefonica ADR (TEF)

Valuation Ratios
P/E Ratio 19.2
Price to Sales 0.9
Price to Book 2.5
Price to Tangible Book
Price to Cash Flow 3.4
Price to Free Cash Flow 10.9
Growth Rates
Sales Growth Rate -5.2%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -2.3%
Cap. Spend. - 3 Yr. Gr. Rate -1%
Financial Strength
Quick Ratio 0
Current Ratio 0
LT Debt to Equity 236.1%
Total Debt to Equity 315.8%
Interest Coverage -1
Management Effectiveness
Return On Assets 0.6%
Ret/ On Assets - 3 Yr. Avg. 1.2%
Return On Total Capital 3.1%
Ret/ On T. Cap. - 3 Yr. Avg. 2.5%
Return On Equity 14%
Return On Equity - 3 Yr. Avg. 10.5%
Asset Turnover 0.4
Profitability Ratios
Gross Margin 52.3%
Gross Margin - 3 Yr. Avg. 52.3%
EBITDA Margin 2.1%
EBITDA Margin - 3 Yr. Avg. 3.6%
Operating Margin 10.5%
Oper. Margin - 3 Yr. Avg. 10.5%
Pre-Tax Margin 6.2%
Pre-Tax Margin - 3 Yr. Avg. 5%
Net Profit Margin 4.6%
Net Profit Margin - 3 Yr. Avg. 4.2%
Effective Tax Rate 26.1%
Eff/ Tax Rate - 3 Yr. Avg. 17.2%
Payout Ratio 122.7%

TEF stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the TEF stock intrinsic value calculation we used $54920 million for the last fiscal year's total revenue generated by Telefonica ADR. The default revenue input number comes from 2016 income statement of Telefonica ADR. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our TEF stock valuation model: a) initial revenue growth rate of 2% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 8.9%, whose default value for TEF is calculated based on our internal credit rating of Telefonica ADR, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of Telefonica ADR.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of TEF stock the variable cost ratio is equal to 93.6%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $0 million in the base year in the intrinsic value calculation for TEF stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 3.5% for Telefonica ADR.

Corporate tax rate of 27% is the nominal tax rate for Telefonica ADR. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the TEF stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for TEF are equal to 107.6%.

Life of production assets of 10 years is the average useful life of capital assets used in Telefonica ADR operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for TEF is equal to -14.8%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $19163 million for Telefonica ADR - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 5254.33 million for Telefonica ADR is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of Telefonica ADR at the current share price and the inputted number of shares is $51.4 billion.

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COMPANY NEWS

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▶ ETFs with exposure to Telefonica SA : November 15, 2017   [Nov-15-17 12:37PM  Capital Cube]
▶ ETFs with exposure to Telefonica SA : November 1, 2017   [Nov-01-17 12:46PM  Capital Cube]
▶ Latin American Buys: Argentina, Brazil and Colombia   [Oct-27-17 06:27AM  Investopedia]
▶ Telefonica posts 3Q profit   [06:36AM  Associated Press]
▶ Telefonica Is a Dominant Player in Over 20 Countries   [Oct-20-17 07:45AM  Market Realist]
▶ Big Questions for Catalonia   [Oct-08-17 11:00PM  Bloomberg]
▶ Will AT&T Sell its Latin American Pay TV Business?   [Sep-19-17 08:01PM  Motley Fool]
▶ [$$] Mexican Supreme Court Backs América Móvil on Interconnection Fees   [Aug-17-17 12:40AM  The Wall Street Journal]
▶ ETFs with exposure to Telefonica SA : August 16, 2017   [Aug-16-17 06:51PM  Capital Cube]
▶ Telefonica posts 2Q profit   [Jul-27-17 03:52PM  Associated Press]
▶ Nasdaq Tumbles as Tech Takes a Turn Lower   [01:37PM  TheStreet.com]
▶ [$$] Telefónica commits to UK as spectrum auction looms   [Jun-27-17 12:51PM  Financial Times]
▶ Telefonica Leads Europe in Move to Converged Services   [Jun-16-17 07:00AM  Morningstar]
▶ 10 High-Quality Foreign-Stock Bargains   [Jun-14-17 06:00AM  Morningstar]
▶ ETFs with exposure to Telefonica SA : May 31, 2017   [May-31-17 12:48PM  Capital Cube]
▶ [$$] Timeline of a hack: How WannaCry's secret weapon spread   [May-14-17 01:21PM  Financial Times]
▶ Spain says several firms hit by cyberattacks   [11:32AM  Associated Press]
▶ Spain says several firms hit by cyberattacks   [11:20AM  Associated Press]
▶ Telefonica posts 1Q profit   [May-11-17 03:16PM  Associated Press]
▶ Millicom Is Undervalued   [May-01-17 07:00AM  Morningstar]
▶ [$$] América Móvil Says Wireless Price War Has Eased   [Apr-26-17 01:15PM  The Wall Street Journal]
▶ The 3 Best International Telecom Stocks to Buy in 2017   [Apr-12-17 02:35PM  Motley Fool]
▶ Top Ranked Income Stocks to Buy for April 5th   [Apr-05-17 09:06AM  Zacks]
Financial statements of TEF
Valuation of Stocks

The paper VALUATION OF STOCKS: The Quest for Intrinsic Value provides a detailed description of our valuation model and discloses the calculation algorithm.

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